Can Blockchain Save Us from the Internet’s Original Sin?

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

In this opinion piece, one of a weekly series of columns, Casey looks at how blockchain might free society from the stranglehold of the four giant data hogs of the internet era: Google, Amazon, Facebook and Apple.

What’s wrong with this picture?

The front page of The Wall Street Journal, Tuesday: “Amazon Lures 238 Bids for its Second Home.”

It’s not a good thing that a single company can get the political leaders of so many American cities and states to scramble over each other to try to lure $5 billion in spending on some new buildings.

The story shows that Amazon’s influence over American urban life is far more than one company deserves: over tax policies, over city planning decisions, over the aesthetics and culture of our communities. Society’s interests lie in sustaining a dynamic, innovative and evolving economy, not one in which hegemonic companies have oversized sway over everyone’s decision-making.

This is the core problem of centralization in the internet age – a pet topic for those of us who believe the ideas behind blockchain technology can point us toward a better economic model.

Amazon is not alone, of course. But it’s in a very select group. An acronym has emerged to define the small club of digital behemoths to which it belongs: GAFA (Google, Amazon, Facebook and Apple).

Two other WSJ stories this past week bring home the distorting influence of two other members of that club. One was Christopher Mims’ column about Facebook’s “master algorithm,” which in determining what we see and read is literally dictating how we think. The other was about Google winning the quantum computing race, a prize that will afford the winner unimaginable competitive advantages in data-processing capabilities.

Meanwhile, with my iPhone 6’s screen cracked and its functionality deteriorated since I upgraded to iOS 11, I’m tempted to switch to a Samsung phone, but don’t want to lose all the data and connectivity that the Apple universe has locked me into. And I know that with the Android OS, I’d just be getting Google’s version of the same dependency anyway.

The internet’s original sin

How did the GAFA gang get to be so powerful? It comes down to an original sin in the first design of the internet.

The inventors of packet switching and of the basic protocols on which the modern web is built did a masterful job figuring how to move information seamlessly across a distributed network. What they didn’t do was resolve the problem of trust.

Since information is power, it is often highly sensitive. So when people share it with each other, they need to know that data can be trusted. But since there was no truly decentralized trust mediation system in place in the 1990s – no permissionless way to solve the Byzantine Generals’ Problem – an asymmetric solution was found.

On the one hand, the distribution of public information was disintermediated, which put all centralized providers of that information, especially newspapers and other media outlets, under intense business pressure from blogs and other new information competitors. But on the other, all valuable information – particularly money itself, an especially valuable form of information – was still intermediated by trusted third parties.

It was a centralized solution bolted onto a decentralized information infrastructure.

So, we got website hosting services to manage each site’s files. We got certificate authorities to authenticate reliable addresses. We got banks and credit card providers to run the payment system. And since we craved the network that Facebook’s community offered and that Amazon’s marketplace could reach and Google’s search engine could tap, we fed ever more valuable information into the hands of these entities – those that won the early, defining battles to establish dominance of those services.

A new internet version of the trusted third party was born, and it was just as powerful, if not more so, than those archetypal trusted third parties of the pre-internet era: banks.

Only these newcomers’ currency isn’t dollars, it’s data.

A decentralized way forward

Lately, problems such as Facebook’s “fake news” dilemma and Equifax’s cyberbreach have finally begun shining a light on the fundamental flaws of a centralized system for controlling sensitive information. But our economy was suffering long before that as result of this re-intermediation.

Since producers now depend on Amazon to reach their customers, their entire business model – from production processes to their planning strategies – is determined by whatever information is generated by the Seattle company’s algorithm. That’s an inherent impediment to effective innovation and creates a dependency that limits competitive capabilities.

If you think this level of domination is bad, consider what will happen when we arrive at a world in which artificial intelligence, machine learning and the Internet of Things have combined to ensure that virtually every decision we make is automated by some algorithm. The question “who owns the data?” is going to become a much bigger problem.

I don’t know if the blockchain will ultimately solve all this. In the blockchain space, there are unsolved challenges relating to how to scale permissionless blockchains such as bitcoin, as well as questions about how much autonomy people want or should have over their own money and their data.

But surely the answer lies somewhere within the core concept of a decentralized trust mechanism that blockchain points to.

Within the model that Satoshi Nakamoto’s invention produced – a system for how to agree on the validity of information shared by strangers in an environment of mistrust – we have a new framework for thinking about who gets to manage data in the internet age.

The idea that the global economy of the future will be one in which individuals and small businesses have direct control over their data, and yet can still operate in open markets and generate network effects is an exciting prospect. It’s a future in which a more level playing field gives rise to true competition and unleashes the kind of open-source innovation that’s needed to solve many of the problems we face.

That world will eventually come. The places that win in that environment will be those that first embrace a new, decentralized model for data sharing and peer-to-peer trading that promotes true competition. The losers will likely include whichever city wins the 2017 beauty contest to host Amazon’s new headquarters.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.